Key Points
- The ‘Kimchi Premium,’ or the Bitcoin (BTC) price gap in South Korea, has decreased by 1.54% in the past four weeks.
- Trading volumes on South Korea’s top five crypto exchanges have significantly dropped, impacting the BTC market outlook.
The ‘Kimchi Premium,’ a term used to describe the price gap of Bitcoin (BTC) in South Korea, has seen a steady decline over the past month. Data from CryptoQuant reveals that the Kimchi Premium decreased by 1.54% in Asia on Friday. This metric compares the price of Bitcoin in the U.S. market to that in South Korea.
Understanding the Kimchi Premium
The Kimchi Premium is a unique occurrence in the crypto market that is exclusive to South Korea. It presents enticing yet potentially risky opportunities for traders due to the country’s strict regulations. The phenomenon represents the price difference of Bitcoin and other cryptocurrencies between South Korean and foreign exchanges.
Several factors contribute to the creation of the Kimchi Premium. These include favorable trade regulations in South Korea, the population’s willingness to use Bitcoin, and the country’s stringent financial controls. The advent of cryptocurrency arbitrage trading has also played a significant role in increasing the popularity of the Kimchi Premium.
Traders often exploit this price difference by purchasing BTC on foreign exchanges and selling them on South Korean exchanges. This strategy can yield substantial profits as the price difference in BTC trading between foreign and South Korean exchanges can range between 3% and 20%.
However, the South Korean market is generally inaccessible to foreign investors. Local investors who use foreign exchanges to buy large amounts of cryptocurrencies for arbitrage may face penalties under the country’s Foreign Exchange Transactions Act. Despite the limited local supply of crypto, South Korea often has significant unmet demands.
In March, the Kimchi Premium experienced a surge of 11.44% around the same time Bitcoin reached a new all-time high of over $73,000.
Impact on the BTC Market Outlook
The current decline in the Bitcoin Kimchi Premium coincides with a drop in trading volumes on South Korea’s top five crypto exchanges. These include Upbit, Bithumb, Coinone, Korbit, and Gopax, which are the main players in the South Korean local crypto market. These exchanges collectively recorded a trading volume of $2 billion in the past 24 hours.
This figure is a significant decrease from the $18 billion reported on March 6. This development indicates a declining interest in the local market, influenced by recent events in the region. The Middle East crisis, which has negatively affected many businesses, remains a bearish trigger. Additionally, the U.S. spot Bitcoin ETFs have had a poor outlook for the past few weeks.
On May 8, many spot Bitcoin ETFs, including BlackRock’s IBIT and Fidelity’s FBTC, did not register any inflows or outflows. Only Bitwise’s Bitcoin ETF BITB recorded inflows of about $12 million.
In recent times, there has been a decrease in events that boost Bitcoin’s value. However, Bitcoin is currently trading at $63,015.97, with a 3.57% increase within the last 24 hours.
